Gov't witness tells NY jury of passing inside info

By the Associated Press | August 6, 2012 | 8:35 PM EDT

NEW YORK (AP) — A notorious cooperator in the biggest insider trading prosecution in history took the witness stand for the first time on Monday, revealing at the trial of a San Francisco hedge fund boss that she began feeding secrets 15 years ago to another man, an eventual billionaire hedge fund founder who had offered her a job.

Roomy Khan, of Fort Lauderdale, Fla., told a Manhattan jury hearing the trial of Doug Whitman that she was living in California and working at Intel Corp. in marketing when she telephoned a "very friendly" Manhattan-based senior analyst, Raj Rajaratnam, for the first time in the mid-1990s.

"I said, 'I wish I had spoken to you a few months ago because I really wanted to work on Wall Street,'" she recalled telling Rajaratnam, who met her soon afterward in California and offered her a job she eventually turned down because her husband didn't want to move to New York.

The Sri Lanka-born Rajaratnam is serving an 11-year prison sentence after he was convicted of insider trading charges at trial last year. The government said he made up to $75 million illegally by getting inside information from a network of friends at public companies and in the hedge fund industry. A probe of his activities at his hedge fund firm, where up to $7 billion was once managed, has already resulted in more than two dozen convictions.

By early 1997, Khan was disenchanted with her work at Intel, where she was privy to secrets about the company's biggest customers, and Rajaratnam was starting his own hedge fund, the Galleon Group of funds. She said she reached out to Rajaratnam, who told her he would hire her as soon as he opened a California office.

During one phone call, Rajaratnam said "How's business?" she recalled.

"I wanted to please him, and I offered the information," she said, adding that his job offer made her want to help him.

Khan testified that she began reading financial information about Intel's top 20 customers, representing 80 percent of its revenue, to Rajaratnam.

"This was very powerful information," she said.

Khan, 53, said she began feeding the information to others as well through 1997 and in 1998 and made trades for her personal accounts.

She said she went to work for Rajaratnam in 1998 and left the job a year later when Rajaratnam insisted that she stop trading in her personal accounts. By then, she said, she had saved between $30 million and $40 million and decided she didn't need to work.

In 1999, FBI agents knocked on her door in Atherton, Calif., asking her about Rajaratnam and Intel.

"I tried to lie to them," she said, but when they confronted her with a photograph of her faxing the sensitive Intel documents, she told them she needed to speak with a lawyer.

She pleaded guilty to wire fraud charges after signing a cooperation agreement with the government in April 2001. Within a few years, the collapse of technology stocks had spoiled her finances, leaving her struggling to pay the mortgage on her $5 million home.

So, she said, she resumed using inside information to make stock trades between 2005 and 2007, obtaining early quarterly earnings results and feeding them to others. In 2009, she pleaded guilty to insider trading charges and obstruction of justice and resumed cooperating with prosecutors.

She said she is yet to be sentenced on charges that could bring up to 30 years in prison. She already has agreed with the Securities and Exchange Commission to forfeit $1.8 million.

After testifying less than an hour, Khan was scheduled Tuesday to talk about what she knows about Whitman, who is accused of making almost $1 million using inside tips from Khan and others. He has denied the charges and has pleaded not guilty.